Credit and Finance for MSMEs: In comparison to India Inc, which is headed towards around 15 per cent decline in revenue, MSMEs are staring at a steeper fall at 17-21 per cent.
Credit and Finance for MSMEs: Around 5 per cent contraction in the Indian economy due to Covid pandemic is expected to push MSMEs into existential crisis with revenue likely to fall a fifth in FY21, according to a Crisil survey. In comparison to India Inc, which is headed towards around 15 per cent decline in revenue, MSMEs are staring at a steeper fall at 17-21 per cent. Earnings before interest, taxes, depreciation and amortization (ebidta) for MSMEs will “shrink to be 200-300 basis points to 4-5 per cent as weak demand gnaws away gains from lower commodity prices,” Crisil said in the survey titled The Epicentre of an Existential Crisis.
“MSMEs were doing fine until Covid crisis emerged. This will be long-drawn and will continue. The biggest issue for MSMEs will be the demand because if you don’t have that then the question of having people back etc. is secondary. MSMEs account for a lion’s share in the economy, be in terms of GDP, employment etc. The way we are seeing Covid cases rise despite lockdown, it is a bit worrying how things will pick up and demand will revive,” Binaifer Jehani, Business Head, Crisil SME Solutions told Financial Express Online.
The creditworthiness of MSMEs will also be impacted “aggravating the liquidity stretch these units have been grappling with, particularly on the working capital front,” Crisil added. According to the survey involving around 450 MSMEs across multiple sectors including real estate, auto components, textiles, FMCG distributorships etc, lending to MSMEs will slow down from 6.5 per cent in FY20 to 6 per cent in FY21.
The survey also highlighted that around 70 per cent of 40,000 companies, most being MSMEs with turnover up to Rs 100 crore, have cash for employee cost for only two quarters. “A three-pronged strategy is essential now: one, improve the sentiment around job security for formal and informal workers to boost consumption. Two, hasten the implementation of the Rs 3 lakh crore Aatmanirbhar scheme to ensure flow of liquidity to MSMEs continues. Three, and most importantly, lenders have to go beyond traditional credit processes because they have to play a seminal role in recovery,” Amish Mehta, Chief Operating Officer, Crisil said.
Last month, the government had announced Rs 20 lakh crore stimulus package for the economy that involved significant measures to provide relief to Covid-hit MSMEs. This included a Rs 3 lakh crore collateral-free scheme for MSMEs. As per the Finance Ministry, as on June 12, public sector banks had disbursed loans worth Rs 16,031.39 crore out of Rs 32,049.86 crore sanctioned.